INTRODUCTION:
Are you a property developer? Here is a quick guide for people just like you. This will introduce the processes involved in property development in detail. The purposes of this guide are:
(a) To explain the principles of construction involved in property development.
(b) To help you become an expert building surveyor and avoid mistakes.
PROPERTY DEVELOPMENT:
First, you have to learn the basics of property development. Property, or real estate, development is a business in which developers buy lands or older buildings to build new structures on, or to renovate old ones with the intent of selling those to various buyers. It does involve a high risk. Developers have to pay attention to the needs of buyers and the present market demands during construction of an estate. The key works done by property developers are:
(a) Purchasing a piece of land.
(b) Determining the market value of the property.
(c) Developing the building design.
(d) Getting approval by the local building authority.
(e) Building the structure and managing the construction carefully.
(f) Selling it at a good profit!
Developers have to work with many different people at each level of the process including engineers, city planners, various surveyors, contractors, leasing agents, inspectors, and many others.
In the United Kingdom, development is defined in the Town and Country Planning Act of 1990, s55, as “In this process building, mining, engineering, and other operations as carried out over or under land.”
Many real estate investors are now showing an interest in getting involved in property development. They buy pieces of land or old houses, tear them down, and then build a number of new townhouses, apartments, or other improved buildings. Then they sell them and move on to the next project. But the process is not as easy as it may sound. You must travel a long road on the way to reaching your desired goals when you choose to pursue property development as a serious career. There are a lot of procedures involved that you must learn and become familiar with. Below are explanations of some of them:
MARKET FOR OPPORTUNITIES IN PROPERTY:
The price at which a property or piece of land would sell for in an auction is called the “market value” of that property. Sometimes the term market value is used interchangeably with “fair market value” and “open market value.” The definition of market value may change depending on different circumstances.
In cases of property development, market opportunity is a great benefit to you. Real estate markets are considered to be both transactional and informational. In these markets, you must remember that you should make your profit in the process of buying a property rather the process of selling it. So, you make your money when you buy, not at the time you sell. If you are seeking to improve your economic future, you really might want to consider taking an opportunity like this.
RETURN ON INVESTMENT:
There are two ways to make money through property development. One is rental yield, or rental income growth, and the other is capital growth. Rental income is the money paid by the tenant. Rental yield is essential if you plan on a buy-to-let strategy. Suppose the property cost £400,000 and the net rental income is £20,000. This simply means that the net rental income is £20,000 divided by £400,000, which is equal to 0.05 or 5%. When selling estates or properties, it is highly recommended that you need to aim for a minimum of 30% return on your investment.
SOURCE OF FINANCING TO GET THE PROPERTY:
Financing is the key word for this project. If you want to write your name on the list of successful property builders, or those who own commercial or residential estates or property for investment purposes, you have to know how to handle finances properly when you are dealing with each and every project. It is very important to maintain good credit and to be aware of available financing sources. Occasionally, you may need to apply for a loan to meet necessary expenditure costs. And never forget that you must always keep a record of all financial documents and associated paperwork.
Property developers have many options to raise funds. There are various sources for acquiring the moneys you may need. Some of the more basic options for you to choose from are:
(a) Commercial banks: There are over 14,000 commercial banks and, as a group, they represent the biggest financial brokers directly involved in providing the funding for real estate businesses. They will approve financial assistance for permanent purchases on occasion as they are primarily lenders offering a multitude of loans. Most large commercial banks have a real estate loan department which has, as one of its many functions, the duty to be involved with the property developers. Most of the big commercial banks are nationally chartered or at least state chartered. The U.S Controller of Currency oversees those banks which are federally chartered. They are members of the Federal Reserve System, or FRS. Nationally chartered banks can make residential loans up to 90% of the estimated value, but not for more than 30 years for developing a property. On the other hand, state chartered banks are supervised by various agencies of the particular state they are in.
(b) Finance companies: Developers who don’t meet all the commercial bank criteria can obtain funding from finance companies. One of the tasks of the finance companies is to arrange consumer loans which will allow for the procurement of both durable and non-durable goods. Types of investments made by finance companies are different from those of commercial banks. Their investments frequently include real estate mortgages, while commercial banks prefer to be more involved in granting personal loans.
(c) Savings & loan associations: With regards to their total assets, S&Ls are not actually the biggest financial operatives, like commercial banks are. But, they are the principal authority on acquiring financing in terms of real dollars. Usually, they are the fundamental suppliers of permanent financing for single-family, owner-occupied, residential properties. S&Ls also frequently offer investors’ loans and loans for home improvements, most notably those for industrial or commercial properties, general real estate, and apartments. Savings and loan associations may be either nationally or state chartered. Roughly 60% of all S&Ls are state chartered while the remainder are nationally chartered.
(d) Private funds: Practically 80% of the total cost of any development project is financed most often by the lenders. Private funds, those that come from more non-commercial sources such as private individuals, are frequently referred to as “hard money.” Private lenders are essential if you are not granted approval for a loan to purchase property by a commercial bank or S&L or other source. These days, a significantly larger cash endowment is necessary to ensure the success of the project. It is very important that you find and enjoin the best of private lenders. The most effective means of finding a private lender is to make use of referrals from real estate agents and others with knowledge of who is in the market to invest in property development projects. Mortgage brokers might also be useful connections to have in this regard.
(e) Life insurance companies: Insurance companies hold a vital role in being able to provide capital financing for property development. Approximately 1,900 insurance companies from all over the world lend money using local mortgage brokers or bankers as intermediaries. They normally choose to back the larger scale projects. No federal agencies oversee the insurance companies. Instead, they are all state chartered, and nearly 90% of all those insurance firms are stock-based companies.
(f) Mortgage bankers: Most people see mortgage bankers as persons who only provide mortgage loans. They make these types of loans by utilising their own assets or moneys acquired temporarily from another lender. Such packages are purchased by primary lenders as well as secondary investors. On occasion it may be necessary to seek financial help from a lender. Such transactions are typically managed by a mortgage banker. In such events like that, there is very rarely any option to release the loan to a third party for review. This is a much more appealing option for investors, as the risk of losing their capital is greatly decreased. Mortgage bankers are engaged in both commercial and residential financing as well as participating in other enterprises such as performing appraisals, offering investment counseling, and writing hazard insurance policies. Like many S&Ls and commercial banks, mortgage bankers are also state chartered.
(g) Mortgage brokers: Mortgage brokers are generally concerned with enterprises similar to those of mortgage bankers and commercial banks. Mortgage brokers are not the principal contributors of capital. Their role in the development of means to secure financing, however, is crucial. Mortgage brokers regularly strive to bring borrowers and lenders together for the sole purpose of ensuring the availability of financing for a multitude of projects. When looking for a broker, be sure he or she is well-qualified in the field and possesses a reliable network of wholesale lenders. It is a must for brokers to maintain a list with all the data on the lenders and documents associated with a job that can be referenced whenever necessary. Mortgage brokers are not routinely involved in the providing of a loan when it is made and the matter is ended.
GETTING AN ARCHITECT:
A person who designs buildings, directs the plan, and, in many cases, supervises the actual construction of the project is termed an architect. He or she plays a crucial role in the process of developing a property. They are employed by the developers to design the layout, appearance, and construction of new buildings. On behalf of the building authority, they may also execute the building contract and certify the completion of the job. A measured building survey of existing structures is required in cases of refurbishment. Building surveyors and, in some cases, architects, may be contracted for this task. Basically, they are responsible for securing approval of the plans for the project’s undertaking. In such cases, planning consultants are not required. Normally, architects are paid their requested percentage of the total building cost. It is important to employ an architect in the earliest stages of the project. You should only contract him or her after learning his or her efficiency level, track record on past projects, experience with jobs similar to yours, and reputation in the field. To maximize your profits in this sphere, an architect can really help a lot. So, you need to make sure you are hiring an expert. The cost for their services is generally calculated as being 10 to15% of the total building budget.
GETTING A CONTRACTOR:
A contractor is a person who makes a promise in writing to perform the work needed to build an estate or structure. They are employed by the property developer to create a development scheme. A contractor’s primary objective is, obviously, to make a financial profit. Developers have to hire some contractors for some of the construction works in order to obtain a complete and improved building. Some development companies appoint their own contractors. Residential developers tend to employ those expert in building residences; they are called house-builders. Developers may keep their contracting division at arm’s length as an entirely separate profit-making centre, though there has been a common trend toward a more integrated approach. Builders have to take an additional risk related with any development project. When a builder is hired only to be the contractor, the financial profit is related only to the building cost and the length of time of the contract. Generally, in the building development process, contractors have to carry out many specific activities in order to reduce the risks to the developer and to maximise the commitment of the other workers to the job. Therefore, an efficient developer should ensure the capacity and capability of the contractors before beginning the proposed work and seek the right balance between the lowest-priced proposal and the quality of performance. A licensed contractor is required for all property development projects. If a contractor is unregistered, you may be facing some serious problems, because workers’ compensation insurers’ requirements for maintaining safe working conditions, such as those mandated by WorkSafeBC, may not be maintained. So, hiring a registered contractor is not only essential, it is critical.
QUANTITY SURVEYOR:
According to different opinions, the origin of this type of surveyor and the work he or she does, is the ancient Egyptian civilisation. The Egyptians used to compile estimates and costs of building their magnificent structures. Quantity surveyors are the key professionals in this industry. Often, they are also known as cost managers, cost engineers, estimators, project cost controllers, project coordinators, cost analysts, and so on. They usually work in the building industry and concern themselves with construction costs, products, and the contracts. Quantity surveyors provide expert advice on building costs. Developers, architects, building proprietors, and governing bodies are their main clients. They have many responsibilities throughout the length of the project. Services offered by a quantity surveyor include the following:
1. Calculate the cost of the construction.
2. Efficient management of the production.
3. To prepare a schedule of quantities.
4. Estimate the costs of maintenance.
5. Estimate the costs of material and labours.
6. Assess the additional costs of design variation.
7. Analyse the agreement of contract sums.
8. Calculate all needed numbers and volumes of materials and labour hours.
9. Take consideration of and initiate reduction plans for management risk.
10. Ensure good maintenance of engineering.
11. Execute commercial management and contract administration.
12. Implement plans to keep the project on time and within budget.
13. Estimate insurance replacement for all kinds of buildings and properties.
14. Maintain proper documentation for the entire project.
15. Oversee the tendering process.
16. Advise on best methods and sources of procurement.
… and much more.
Before starting any project, a calculation of budget is done by a quantity surveyor on the demand of the clients. He or she has to ensure that the budget is sufficient for each step of construction after estimates have been generated. When construction starts, the quantity surveyor should keep the cost within the proscribed limits. He or she can provide cash flow data so the client can arrange finances needed for each stage of the project. One of the duties of a quantity surveyor is to provide the bank with a project report and to help the client by preparing a draw down certificate for the bank loan. The surveyor is in charge of adding up the total cost when the construction is completed. A quantity surveyor can prepare a statement of final account which shows all records of costs of every section and stage of the project.
ENGINEERING SURVEYOR:
The person who is responsible for undertaking a survey for obtaining information essential to the planning of an engineering project is an engineering surveyor. This survey is essential in order to obtain necessary information regarding construction, planning, and designing of structures. Structural engineers and engineering surveyors are employed to work with the architects and quantity surveyors to advise them on the design of the construction elements of the estate or building. They may also take part in supervising the actual construction stages of the project. An engineering surveyor should be employed wherever major ground or construction work is to be done. This person can help you a lot using his or her scientific knowledge and specialized techniques during construction. You should hire a qualified engineering surveyor with professional licensure protection. This licensure is very important for the proper execution of this job. Only a selected group of engineers has this type of certification because the requirements are very tough and stringent. Engineering surveyors are even more exceptional than their fellow engineers. Because not all engineers are licensed, you have to make certain the ones you hire possess this accreditation. You can also hire engineering surveyors for other types of survey work including topographical or measured building surveys.
TOPOGRAPHICAL SURVEY:
Topography is the mapping of the land itself or the configuration, shape, or dimensional characteristics of the earth’s surface. It is a field of geoscience. This type of surveying includes the process of ascertaining and representing upon a plane surface the earth’s crust and its physical features. Such a map is called a topographical survey. These surveys represent the measurements of dimensional relationships, horizontal distances, directions, elevations, and angles on the earth’s surface. They are especially useful in helping to locate property boundaries, outlining the construction layout, and mapmaking. Topographical surveys will help you to make plans or maps of an area on which you may want to build or develop. The topographical map is used for a variety of purposes such as:
(a) A very common use of this map is in planning the stages of projects to help make the design and layout of the location of a future building, roads, dams, landscapes, pipelines, and various routes or trails.
(b) Engineers, architects, geologists, foresters, and other professionals use these topographical map for their work.
(c) To gather survey data about the natural and man-made features of the land as well as the elevations.
Surveying methods: There are various methods through which we can survey topography. They are discussed below —-
(a) Plane table: a plane table will be there and data will be plotted on a drawing paper fixed upon the table with a pin.
(b) Trans-Stadia survey: various measurements are taken in the field, recorded in the field book, and then plotted on the paper later on.
(c) Photogrammetric method: Distances, locations, areas, and elevations are recorded by aerial photographs for mapping. In this measurement technique, co-ordinates of the points of an object are determined in a 3D view basis using the measurements made in two photographic images taken from different positions.
(d) Remote sensing: This is a general term for geo-data collection undertaken at a distance from the subject area.
(e) Aerial and satellite imagery: This method is used in a surveying system that helps to identify and delineate terrain features and land features. Images can be visible in colours and in other spectrums in this system.
(f) Radar and sonar: This mapping technique is one a primary one which generates digital elevation models.
There are also different methods of studying topography. To design the layout and location of buildings, roads, or any other construction, this survey is very helpful. You might consider using a company named Icelabz Solutions Limited. This company started business in 2013, and they provide valuable support services with regards to these surveys.
MEASURED BUILDING SURVEY:
This is a correct representation of your building showing all the structural elements. You have to get an engineering surveyor to undertake such a procedure for existing properties. The measure building survey includes floor plans, roof plans, cross sections, elevations, reflected ceiling plans, wire frames, and the like. The latest laser-scanning technique utilises this survey to capture 3D data of buildings and other structures. If you need a measured building survey, you may want to look again at Icelabz Survey Limited, as they offer a wide range of professional measurement services for this type of work.
HOW CAN I FIND OUT MORE?
VISIT:
- (a) www.hse.gov.uk/property for more information.
- (B) www.crowdstreet.com/
- (C) www.fundrise.com/
- (D) https://www.realtymogul.com/